Aflac shares slip on Japan sales concerns

AlistairBarr

SAN FRANCISCO (MarketWatch) -- Aflac Inc. shares lost ground Wednesday, pulling back after the health and life insurer said continued competition in Japan is crimping sales.

The shares fell nearly 5% at one point in morning dealings and closed down 2.2% at $43.65.

Late Tuesday, Columbus, Ga.-based Aflac
AFL, +0.50%
reported a 19% drop in third-quarter net income as new annualized premium sales in Japan fell 12%. The company also said it expects such sales in Japan, its biggest market, to decline for the rest of the year, citing a "challenging market."

"Although stand-alone medical coverage remained our best-selling product category and we retained our No. 1 market position, medical sales were weak in the quarter," Aflac said in a statement.

"Japan results show a five-quarter slide in sales growth despite new products and distribution efforts," Stewart Johnson, analyst at Friedman Billings Ramsey & Co., wrote in a note to clients on Wednesday.

Aflac's third-quarter net income came in at $367 million, or 73 cents a share, down 19% from a year earlier, when Aflac made $455 million, or 90 cents a share. Operating earnings, which exclude realized investment gains and losses and other items, came in at $363 million, or 72 cents a share, the company reported. See full story.

Aflac had been expected to make 72 cents a share, according to the average estimate of 20 analysts in a Thomson First Call survey.

Total revenue amounted to $3.7 billion during the September quarter, unchanged from a year ago, Aflac added.

Aflac generated roughly three quarters of its operating earnings, before tax, from Japan, Johnson noted.

"To get premium growth back on track, sales in Japan must rebound," he said.

"Our concern is that Aflac may be stuck without an apparent source of improvement for growth or return on equity to justify an even higher price-to-book or price-to-earnings multiple, which drives share price," the analyst added.

Aflac's shares have traded down more than 7% for 2006.

Also late Tuesday, Chief Executive Daniel Amos said in a statement that management remains confident that Aflac will achieve its main goal of lifting 2006 full-year operating earnings by 15%, to $2.92 a share.

Fourth-quarter operating income should be between 65 cents a share and 66 cents a share, assuming Japan's yen averages 115 to 120 to the U.S. dollar for the remainder of the year, Amos added.

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